This year marked the reinforcing of the fact that The Australian Securities Exchange does not intend to leave any room for loopholes in the system when it comes to disclosure requirements. The latest debacle on two small-caps, Big Un and GetSwift, led to investors’ woes with the type of disclosures made to the market and the U-turn made in terms of future performance with over-reliance on the earlier disclosures. The way these embattled companies have led the market in the past, resulted in the Australian Securities Exchange tightening its screws on listing rules. Particularly, Big Un and GetSwift seem to have exaggerated in terms of the customer contracts in their kitty which was aggravated by misconduct of directors. Investigations conducted by media shed a light on how investors were not informed about some crucial information.

ASX now aims to curb the scenario wherein over-exaggeration of gains from customer contracts is done to get more interests from the investors. Any disclosure that indicates about contracts with major global customers without adequate details will be caught by the neck. Further, details on contract being conditional or subject to a trial period can’t go missing now. Furthermore, revenue projections based on the contracts or statement of impact from termination of a contract will be scrutinized. Along with this, rules on disclosures relating to past misconduct of individuals who intend to become directors or have control of listed companies, have been changed. Existing directors as well as proposed directors in back-door listings are now required to provide evidence of good fame and character, which was earlier only needed in cases of back door listings. Failing to comply with the requirements, ASX will suspend the entity, and require it to correct any inadequate or misleading disclosures. ASX has also gradually tightened its admissions related requirements and one example that fitted into the scrutiny zone is that of Guvera which was rejected from listing. It has been said that about 44 listing applications were rejected by ASX during March 2016 and December 2017 on failing to meet listing requirements.

Coming back to the IT company, GetSwift (down over 85% in last three months), ASX had noted that group’s disclosures enumerated many contracts and some contracts were just pilot schemes while some lacked appropriate disclosures. The shares of the group were suspended in December last year post the group came under spotlight based on an agreement with Amazon. The group also witnesses a class action from shareholders led by the losses the group made recently on the grounds of inadequate disclosures.

These two cases have raised a question mark on many such small-caps and investors thus need to be wary of the prospects showcased by the companies to understand their potential for growth.

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